Know the 3 Key “What Counts” Factors for Your Stock Picks

When you create your stock pitch, be sure to identify and analyze the "what counts" factors for your stock. What counts factors are the variables that are the key drivers for making the stock work the way you expect. At a high level, these factors tend to be:

• Revenue
• Gross Margin
• Operating Margin

For example, if the stock you are pitching is a high flying growth story, concentrate on revenue growth rate. Should your recommendation hinge on an improvement in product mix then zero in on gross margin expansion. A cost restructuring story? Examine operating margin. If the stock is a roll-up, focus on revenue retention and operating margins.

Other factors may be important for a given stock story (such as ASPs, same store sales, etc).  However, to generalize, changes in revenue, gross margin and operating margin are often the hot button items that affect earnings and multiples.

For more thoughts on stock pitches, see:  Tips for Preparing a Stock Recommendation

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